Elucidating the Influence of Demographics and Psychological Traits on Investment Biases
This study explored the relationship between
psychological traits, demographics and financial behavioral biases for
individual investors in Taiwan stock market. By using questionnaire
survey method conducted in 2010, there are 554 valid convenient
samples collected to examine the determinants of three types of
behavioral biases. Based on literature review, two hypothesized
models are constructed and further used to evaluate the effects of big
five personality traits and demographic variables on investment biases
through Structural Equation Model (SEM) analysis. The results
showed that investment biases of individual investors are significantly
related to four personality traits as well as some demographics.
[1] D. Acker, and N. W. Duck, "Cross-cultural overconfidence and biased
self-attribution," J. Soc. Econ., vol. 37, pp.1815-1824, 2008.
[2] R. P. Bagozzi, and Y. Yi, "On the evaluation of structural equation
models," J. Acad. Market. Sci, vol. 16, pp. 74-94, 1988.
[3] T. E. Bailard, D. L. Biehl, and R. W. Kaiser, Personal Money
Management (5th ed.). Chicago, Ill.: Science Research Associates, 1986.
[4] B. M. Barber, and T. Odean, "The courage of misguided convictions,"
Financial Analysts Journal, vol. 55, no. 6, pp. 41-55, 1999.
[5] B. M. Barber, and T. Odean, "Boys will be boys: gender, overconfidence,
and common stock investment," Q. J. Econ., vol. 116, no. 1, pp. 261-292,
2001.
[6] G. Bhandari, and R. Deaves, "The demographics of overconfidence," J.
Behav. Finance, vol. 7, no. 1, pp. 5-11, 2006.
[7] B. M. Byrne, Structural Equation Modeling with AMOS - Basic Concepts,
Applications, and Programming, Mahwah, New Jersey: Lawrence
Erlbaum Associates, 2001.
[8] P. T. Jr. Costa, and R. R. McCrae, Revised NEO Personality Inventory
and NEO Five-Factor Inventory: Professional Manual. FL: Psychological
Assessment Resources, 1992.
[9] N. Dass, M. Massa, and R. Patgiri, "Mutual funds and bubbles: The
surprising role of contractual incentives," Rev. Financ. Stud., vol. 21, no.
1, pp. 51-99, 2008.
[10] A. Devenow, and I. Welch. "Rational herding in financial economics,"
Eur. Econ. Rev., vol. 40, no. 3-5, pp. 603-615, 1996.
[11] A. H. Eagly, and L. L. Carli, "Sex of researchers and sex-typed
communications as determinants of sex differences in influence ability: a
Meta-Analysis of Social Influence Studies," Psychol. Bull., vol. 90, no. 1,
pp.1-20, 1981.
[12] N. S. Endler, and D. Magnusson, "Toward an interactional psychology
and personality," Psychol. Bull., vol. 83, no. 5, pp. 956-974, 1976.
[13] E. F. Fama, "Efficient capital markets: a review of theory and empirical
work," J. Finance, vol. 33, no. 4, pp. 75-83, 1970.
[14] R. Garvey, A. Murphy, and F. Wu, "Do losses linger," The Journal of
Portfolio Management, vol. 33, no. 4, pp. 75-83, 2007.
[15] J. F. Hair, R. E. Anderson, R. L. Tatham, and W. C. Black, Multivariate
Data Analysis (5th ed.). Prentice Hall International: UK, 1998.
[16] J. W. Hoelter, "The analysis of covariance structures: Goodness-of-fit
indices," Socio. Meth. Res., vol. 11, no. 3, pp. 325-344, 1983.
[17] L. A. Hayduk, Structural Equation Modeling with LISREL: Essentials
and Advances, Baltimore, MD: John Hopkins University Press, 1987.
[18] K. C. Jöreskog, and D. Sörbom, LISREL VIII: Reference Guide, Scientific
Software International Inc., Chicago, 1993.
[19] D. Kahneman, and A. Tversky, "Prospect theory: an analysis of decision
under risk," Econometrica, vol. 47, no. 2, 1979, pp. 263-291.
[20] R. B. Kline, Principles and Practice of Structural Equation Modeling,
New York: Guilford Press, 1998.
[21] S. Maital, R. Filer, and J. Simon, "What do people bring to the stock
market (beside money)?" The Economic Psychology of Stock Market
Behavior, In B. Gilad and S. Kaish (Eds.), Handbook of Behavioral
Economics Behavioral Macroeconomics, vol. B, Greenwich, Connecticut,
JAI Press Inc., 1986, pp. 273-307.
[22] I. B. Myers, and M. H. McCaulley, Manual: A guide to the Development
and Use of the Myer Briggs Type Indicator. Palo Alto, CA: Consulting
Psychologist Press, Inc., 1985.
[23] R. Raine-Eudy, "Using structural equation modeling to test for
differential reliability and validity: An empirical demonstration,"
Structural Equation Modeling, 2000, vol. 7, no. 1, pp. 124-141.
[24] J. B. Rotter ,"Generalized expectancies for internal versus external
control of reinforcements," Psychol. Monogr., vol. 80, pp.1-27, 1966.
[25] D. S. Scharfstein, J. C. Stein, "Herd behavior and investment,- Am. Econ.
Rev., vol. 80, no.3, pp. 465-479, 1990.
[26] P. S. Schaefer, C. C. Williams, A. S. Goodie, and, W. K. Campbell,
"Overconfidence and the Big Five," J. Res. Pers., vol. 38, pp. 473-480,
2004.
[27] S. Sehgal, and N. Tripathi, "Investment strategies of FIIs in the Indian
equity market," The Journal of Business Perspective, vol. 13, no. 1, pp.
11-18, 2009.
[28] H. Shefrin, and M. Statman, "The disposition to sell winners too early
and ride losers too long: theory and evidence," J. Finance, vol. 40, no. 3,
pp. 777-790, 1985.
[29] W. R. Sias, "Institutional herding," The Review of Financial Studies, vol.
17, no. 1, pp. 165-206, 2004.
[30] P. G. Shu, Y. H. Yeh, S. B. Chiu, and H. C. Chen, "Are Taiwanese
individual investors reluctant to realize their losses?" Pac. Basin. Finance
J., vol. 13, no. 2, pp. 201-223, 2005.
[31] M. Statman, S. Thorley, and K. Vorkink, Investor overconfidence and
trading volume. Rev. Financ. Stud., vol. 19, no. 4, pp. 1531-1565, 2006.
[32] E. R. Stone, C. L. Dodrill, and N. Johnson, " Depressive cognition: A test
of depressive realism versus negativity using general knowledge
questions," J. Pers., vol. 135, no.6, pp. 583-602, 2001.
[33] G. Van de Venter, and D. Michayluk, "An insight into overconfidence in
the forecasting abilities of financial advisors," Aust. J.Manag., vol. 32, no.
3, pp. 545-557, 2008.
[34] D. G. Williams, "Dispositional optimism, neuroticism, and extraversion,"
Pers. Indiv. Differ., vol. 13, no. 4, pp. 475-477, 1992.
[35] R. N. Wolfe, and J. W. Grosch, "Personality correlates of confidence in
one-s decisions," J. Pers., vol. 58, pp. 515-534. , 1990.
[36] U. Yavas, "The base of power in international channels," Int. Market.
Rev., vol. 15, no. 2, pp. 140-150, 1998.
[1] D. Acker, and N. W. Duck, "Cross-cultural overconfidence and biased
self-attribution," J. Soc. Econ., vol. 37, pp.1815-1824, 2008.
[2] R. P. Bagozzi, and Y. Yi, "On the evaluation of structural equation
models," J. Acad. Market. Sci, vol. 16, pp. 74-94, 1988.
[3] T. E. Bailard, D. L. Biehl, and R. W. Kaiser, Personal Money
Management (5th ed.). Chicago, Ill.: Science Research Associates, 1986.
[4] B. M. Barber, and T. Odean, "The courage of misguided convictions,"
Financial Analysts Journal, vol. 55, no. 6, pp. 41-55, 1999.
[5] B. M. Barber, and T. Odean, "Boys will be boys: gender, overconfidence,
and common stock investment," Q. J. Econ., vol. 116, no. 1, pp. 261-292,
2001.
[6] G. Bhandari, and R. Deaves, "The demographics of overconfidence," J.
Behav. Finance, vol. 7, no. 1, pp. 5-11, 2006.
[7] B. M. Byrne, Structural Equation Modeling with AMOS - Basic Concepts,
Applications, and Programming, Mahwah, New Jersey: Lawrence
Erlbaum Associates, 2001.
[8] P. T. Jr. Costa, and R. R. McCrae, Revised NEO Personality Inventory
and NEO Five-Factor Inventory: Professional Manual. FL: Psychological
Assessment Resources, 1992.
[9] N. Dass, M. Massa, and R. Patgiri, "Mutual funds and bubbles: The
surprising role of contractual incentives," Rev. Financ. Stud., vol. 21, no.
1, pp. 51-99, 2008.
[10] A. Devenow, and I. Welch. "Rational herding in financial economics,"
Eur. Econ. Rev., vol. 40, no. 3-5, pp. 603-615, 1996.
[11] A. H. Eagly, and L. L. Carli, "Sex of researchers and sex-typed
communications as determinants of sex differences in influence ability: a
Meta-Analysis of Social Influence Studies," Psychol. Bull., vol. 90, no. 1,
pp.1-20, 1981.
[12] N. S. Endler, and D. Magnusson, "Toward an interactional psychology
and personality," Psychol. Bull., vol. 83, no. 5, pp. 956-974, 1976.
[13] E. F. Fama, "Efficient capital markets: a review of theory and empirical
work," J. Finance, vol. 33, no. 4, pp. 75-83, 1970.
[14] R. Garvey, A. Murphy, and F. Wu, "Do losses linger," The Journal of
Portfolio Management, vol. 33, no. 4, pp. 75-83, 2007.
[15] J. F. Hair, R. E. Anderson, R. L. Tatham, and W. C. Black, Multivariate
Data Analysis (5th ed.). Prentice Hall International: UK, 1998.
[16] J. W. Hoelter, "The analysis of covariance structures: Goodness-of-fit
indices," Socio. Meth. Res., vol. 11, no. 3, pp. 325-344, 1983.
[17] L. A. Hayduk, Structural Equation Modeling with LISREL: Essentials
and Advances, Baltimore, MD: John Hopkins University Press, 1987.
[18] K. C. Jöreskog, and D. Sörbom, LISREL VIII: Reference Guide, Scientific
Software International Inc., Chicago, 1993.
[19] D. Kahneman, and A. Tversky, "Prospect theory: an analysis of decision
under risk," Econometrica, vol. 47, no. 2, 1979, pp. 263-291.
[20] R. B. Kline, Principles and Practice of Structural Equation Modeling,
New York: Guilford Press, 1998.
[21] S. Maital, R. Filer, and J. Simon, "What do people bring to the stock
market (beside money)?" The Economic Psychology of Stock Market
Behavior, In B. Gilad and S. Kaish (Eds.), Handbook of Behavioral
Economics Behavioral Macroeconomics, vol. B, Greenwich, Connecticut,
JAI Press Inc., 1986, pp. 273-307.
[22] I. B. Myers, and M. H. McCaulley, Manual: A guide to the Development
and Use of the Myer Briggs Type Indicator. Palo Alto, CA: Consulting
Psychologist Press, Inc., 1985.
[23] R. Raine-Eudy, "Using structural equation modeling to test for
differential reliability and validity: An empirical demonstration,"
Structural Equation Modeling, 2000, vol. 7, no. 1, pp. 124-141.
[24] J. B. Rotter ,"Generalized expectancies for internal versus external
control of reinforcements," Psychol. Monogr., vol. 80, pp.1-27, 1966.
[25] D. S. Scharfstein, J. C. Stein, "Herd behavior and investment,- Am. Econ.
Rev., vol. 80, no.3, pp. 465-479, 1990.
[26] P. S. Schaefer, C. C. Williams, A. S. Goodie, and, W. K. Campbell,
"Overconfidence and the Big Five," J. Res. Pers., vol. 38, pp. 473-480,
2004.
[27] S. Sehgal, and N. Tripathi, "Investment strategies of FIIs in the Indian
equity market," The Journal of Business Perspective, vol. 13, no. 1, pp.
11-18, 2009.
[28] H. Shefrin, and M. Statman, "The disposition to sell winners too early
and ride losers too long: theory and evidence," J. Finance, vol. 40, no. 3,
pp. 777-790, 1985.
[29] W. R. Sias, "Institutional herding," The Review of Financial Studies, vol.
17, no. 1, pp. 165-206, 2004.
[30] P. G. Shu, Y. H. Yeh, S. B. Chiu, and H. C. Chen, "Are Taiwanese
individual investors reluctant to realize their losses?" Pac. Basin. Finance
J., vol. 13, no. 2, pp. 201-223, 2005.
[31] M. Statman, S. Thorley, and K. Vorkink, Investor overconfidence and
trading volume. Rev. Financ. Stud., vol. 19, no. 4, pp. 1531-1565, 2006.
[32] E. R. Stone, C. L. Dodrill, and N. Johnson, " Depressive cognition: A test
of depressive realism versus negativity using general knowledge
questions," J. Pers., vol. 135, no.6, pp. 583-602, 2001.
[33] G. Van de Venter, and D. Michayluk, "An insight into overconfidence in
the forecasting abilities of financial advisors," Aust. J.Manag., vol. 32, no.
3, pp. 545-557, 2008.
[34] D. G. Williams, "Dispositional optimism, neuroticism, and extraversion,"
Pers. Indiv. Differ., vol. 13, no. 4, pp. 475-477, 1992.
[35] R. N. Wolfe, and J. W. Grosch, "Personality correlates of confidence in
one-s decisions," J. Pers., vol. 58, pp. 515-534. , 1990.
[36] U. Yavas, "The base of power in international channels," Int. Market.
Rev., vol. 15, no. 2, pp. 140-150, 1998.
@article{"International Journal of Business, Human and Social Sciences:62905", author = "Huei-Wen Lin", title = "Elucidating the Influence of Demographics and Psychological Traits on Investment Biases", abstract = "This study explored the relationship between
psychological traits, demographics and financial behavioral biases for
individual investors in Taiwan stock market. By using questionnaire
survey method conducted in 2010, there are 554 valid convenient
samples collected to examine the determinants of three types of
behavioral biases. Based on literature review, two hypothesized
models are constructed and further used to evaluate the effects of big
five personality traits and demographic variables on investment biases
through Structural Equation Model (SEM) analysis. The results
showed that investment biases of individual investors are significantly
related to four personality traits as well as some demographics.", keywords = "Behavioral finance, Big Five, Disposition effect,
Herding, Overconfidence, Personality traits.", volume = "5", number = "5", pages = "784-6", }
